Budget 2026: Industry Pushes SEZ Import Duty Relief Amid Policy Debate

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AuthorVihaan Mehta|Published at:
Budget 2026: Industry Pushes SEZ Import Duty Relief Amid Policy Debate
Overview

Indian industry is lobbying for customs duty reductions on goods sold from Special Economic Zones (SEZs) into the domestic market ahead of the Union Budget 2026. Proponents argue this is vital for manufacturing competitiveness, while critics warn of tariff distortions and potential harm to domestic firms, creating a policy debate on SEZs' future role.

Industry Seeks SEZ Duty Relief

Industry groups are pressing for customs duty relief on goods sold from Special Economic Zones (SEZs) into India's domestic market. This demand, a key focus for the Union Budget 2026, aims to bolster India's manufacturing sector and support initiatives like 'Make in India'. Companies argue current regulations, which levy full import duties on SEZ goods entering the domestic tariff area, create a competitive disadvantage.

Proposed Duty Mechanism

Anurag Sehgal, Managing Director at Price Waterhouse & Co LLP, stated the industry's request is specific: SEZ units should pay customs duty only on the imported portion of duty-free inputs, rather than the entire value of goods cleared domestically. This adjustment, he contends, is essential to keep SEZs competitive amid India's expanding free trade agreement (FTA) landscape.

Concerns Over Tariff Parity

Former Central Board of Indirect Taxes and Customs (CBIC) chairman Najib Shah strongly opposes the industry's demand. He cautions that allowing SEZ units to sell into the domestic market at lower duty rates would distort tariff parity. This, Shah argues, would disadvantage domestic manufacturers who do not enjoy similar benefits and dilute the original export-oriented purpose of SEZs.

SEZ Performance and Policy Debate

Shah highlighted that SEZs continue to perform well, citing approximately $170 billion in exports last year. He suggests these zones should complement FTAs by producing competitive export goods rather than seeking preferential access to the domestic market. The debate thus centers on whether SEZs should evolve beyond their export-first design to support broader manufacturing ambitions or maintain their original focus.

Budget 2026 Expectations

The government faces a critical decision ahead of the Union Budget 2026. It must balance industry's call for manufacturing flexibility with concerns over revenue impact and competitive fairness. The outcome is likely to shape the future role of SEZs in India's trade and industrial strategy, potentially through targeted duty tweaks or maintaining the status quo.

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